Say you’ve just bought (or leased) a new or used car, truck or SUV. Maybe it’s your first vehicle, and you’re new to auto insurance, or perhaps not. Perhaps you want to look into changing your insurance for better coverage, or better service, or to save money. The first thing you need to know is the coverage your province requires. As in all Canadian provinces, all drivers are required by law to carry a certain legal minimum in liability coverage and accident benefits coverage. Here are the types of coverage to consider.
As its name implies, liability insurance pays for accidental damage to other peoples’ vehicles and property as well as injuries to others. The latter typically includes medical expenses, pain and suffering and lost wages. It can also cover legal defense and court costs, if necessary. Provincial laws define the minimum required, but depending on how much you have to lose if sued for a mishap that’s judged to be your fault, it’s smart to purchase more than the minimum.
No-Fault claims for auto accident losses are paid out immediately and by the driver’s own insurance companies. Before the insurance company pays out the damages to both parties, responsibility for an accident has to be established first. In Canada, provincial governments set the policy that holds across the individual provinces. Because of this, the adoption of no-fault insurance has been uneven across the country. Canadian drivers are advised to remain informed on their respective provinces’ no-fault insurance policies to understand how their claims and payouts will be affected.
This coverage pays for damage to or replacement of your vehicle. Just keep in mind that the insurance company will pay its Kelley Blue Book used vehicle replacement value, not what you paid for it or what you may believe it’s worth. For an old, near-worthless beater, you can probably do without collision protection.
In most instances, supplemental, comprehensive insurance also covers your vehicle, but not for accident damage. It pays to repair damage due to fire, theft, vandalism, flood, wind, hail, etc. Like collision, it reimburses for a total loss up to the vehicle’s Kelley Blue Book value.
This additional coverage covers for loss or damage caused by an at-fault driver who is uninsured or insufficiently insured. The U.S.-based Insurance Information Institute reported that 12.6% of drivers in 2012 were uninsured, down three percentage points from 20 years earlier.
If your vehicle ends up in the shop for repairs after an accident, it might pay to have Rental Reimbursement to cover the cost of a rental car. The coverage typically is a daily allowance while your vehicle is being fixed or while you find a new one if yours is totaled.
Drivers should consider this coverage if they are buying or leasing a new high-end or luxury vehicle. Gap insurance pays the difference, if any, between a totaled vehicle’s Kelley Blue Book value and what you may still owe on it. Most of the depreciation of a new vehicle occurs in the first three years of ownership. Some insurance companies do include replacement cost, which in its own way is a form of gap insurance.
Making the right decision
Beyond provincial requirements, which coverages you buy is up to you. How much you should buy (and how much it will cost) depends, among other factors, on the value and condition of your vehicle and how much you can afford to risk.
Like most insurance, each type of coverage comes with specified deductibles and limits. A deductible is the amount you agree to pay up front for vehicle repair or replacement, or medical or legal costs, before the insurance company kicks in its first dollar. A coverage limit is the maximum the policy will pay per person or per accident.
Not surprisingly, higher coverage limits cost more. But higher deductibles (say $500 CDN for vehicle damage or $1,000 for liability) lower your premium. You can save substantial dollars per month if you’re willing to risk higher out-of-pocket costs.
In any event, it’s wise for most consumers to invest in more liability insurance than their province's legal minimum as protection from a potentially ruinous financial setback, especially should you be sued for losses beyond your coverage. You owe it to yourself and your family to understand your risks and shop for the best coverages from the most reputable companies.